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Determinants of Corporate Social Responsibility Disclosure: An Application of Stakeholder Theory
Determinants of Corporate Social Responsibility Disclosure: An Application of Stakeholder Theory
ROBIN W. ROBERTS
School o f Accountancy, University o f M i s s o u r i - C o l u m b i a
Abstract
A lack of sufficient theoreucal support for models destgned to explain corporate soctal responsibihty actisaty
led Ullmann (Academy of Management Rewew, 1985, pp. 540-577) to develop a framework for prechcting
corporate social activity based on a stakeholder theory of strategic management This study empirically tests
the ability of stakeholder theory to explain one s-Ix~ificcorporate social responsibility activtty - - social
responsibility disclosure. Results support this application, finding that measures of stakeholder power,
strategm posture, and economic performance are significantlyrelated to levels of corporate socml disclosure
595
596 R w ROBERTS
many areas itfcluding the following categories: forwarded by Keim, Belkaoui, and Watts and
( 1 ) the environment, ( 2 ) affirmative action Z i m m e r m a n into a model of corporate social
programs, ( 3 ) equal e m p l o y m e n t opportunity responsibility disclosure.
policies, ( 4 ) c o m m u n i t y involvement, ( 5 ) pro-
duct safety, ( 6 ) policies toward South Africa, E c o n o m i c consequences a n d i n f o r m a t i o n
(7) energy policies, and ( 8 ) social responsibility content studies
disclosure (CEP, 1986; Cowen et al., 1987). Studies on the effects of corporate social
Studies of relationships among social disclosure, responsibility activities on firm value have
social performance, and economic performance p r o d u c e d mixed results. Some studies have
of corporations include philosophical treatises reported beneficial effects while others
on businesses' inherent responsibilities to have concluded that the effects are negative or
society, research regarding the economic con- inconsequential. Belkaoui ( 1 9 7 6 ) investigated
sequences or information content of social the information content of pollution control
responsibility activities and studies of the disclosures by developing portfolios of disclos-
determinants of social responsibility disclosures. ~ ing and nondisclosing firms. His results supported
Each stream of research is reviewed below. an ethical investor hypothesis that rewarded
companies for acting in a socially responsible
The social responsibilities o f business manner. The findings of some additional studies
During the 1960s and 1970s the relationship p r o d u c e d results consistent with the notion
b e t w e e n business and society was re-examined that corporate social responsibility activities
and with that re-examination e m e r g e d new impact on the financial markets (Spicer, 1978a,
theories regarding corporate responsibilities to b; Anderson & Frankle, 1980; Shane & Spicer,
society (Dierkes & Antal, 1986). Steiner (1972), 1983).
Davis (1973) and others proposed that diffusion Some studies replicated earlier research and
of corporate ownership made the traditional found conflicting results. Frankle & Anderson
m a n a g e r - o w n e r model of the business entity ( 1 9 7 8 ) rejected Belkaoui's interpretation and
misspecified. They argued that although busi- argued that nondisclosing firms had consistently
ness is, fundamentally, an economic institution, performed better than the market. In a similar
larger firms exert significant influence in society manner, Chen & Metcalf ( 1 9 8 0 ) d i s a g r e e d with
and have responsibilities to use some e c o n o m i c Spicer's conclusions arguing that the results
resources in an altruistic manner to aid in w e r e driven by spurious correlations. In re-
meeting social goals sponse, Spicer ( 1 9 8 0 ) stated that Chen and
Keim (1978b) argued that social responsibility Metcalf misinterpreted the purpose of his study
activities may be consistent with wealth max- emphasizing that associations, not causal rela-
imization motives of the firm. He stated that as tionships, w e r e being investigated.
society changes societal constraints on business Ingrain ( 1 9 7 8 ) concluded that the informa-
activity also change. In a social environment tion content of social responsibility disclosures
that expects all corporations to exhibit concern was conditional upon the market segment with
for social goals, corporations that do not may b e which a firm is identified, while Alexander &
punished. Similar conclusions w e r e reached by Buchholz ( 1 9 7 8 ) and Abbott & Monsen ( 1 9 7 9 )
Belkaoui ( 1 9 7 6 ) and Watts & Z i m m e r m a n found no significant relationship b e t w e e n a
(1978). Stakeholder theory provides an avenue corporation's level of social responsibility acti-
in which to integrate the hypotheses regarding vities and stock market performance. Chugh et
corporate social responsibility activities al. (1978), Trotman & Bradley ( 1 9 8 1 ) and
based on the stakeholder c o n c e p t formalized b y continuously monitoring its position with stake-
Freeman (1984). Ullmann's f r a m e w o r k is con- holders and is not developing specific programs
sistent with the conceptual view of corporate to address stakeholder influences, then the
social reporting discussed b y Dierkes & Antal c o m p a n y is perceived to possess a passive
(1985), that publicly disclosed information strategic posture. Thus, the m o r e active the
regarding corporate social responsibility activi- strategic posture the greater the e x p e c t e d
ties provides a basis for dialogue with various social responsibility activities and disclosures.
business constituencies. The model's third dimension concerns the
Ullmann (1985) presents a three-dimensional company's past and current economic perfor-
model as sufficient to explain almost all correla- mance. The importance placed on meeting
tions a m o n g social disclosure and social and social responsibility goals may b e secondary to
e c o n o m i c performance. Stakeholder p o w e r is meeting the e c o n o m i c demands that impact
discussed as the first dimension of the model, directly on a company's continued viability.
explaining that a firm will be responsive to the Economic p e r f o r m a n c e directly affects the
intensity of stakeholder demands. A stakeholder's financial capability to institute social responsi-
(e.g. owners, creditors, or regulators) p o w e r to bility programs. Therefore, given certain levels
influence corporate m a n a g e m e n t is viewed as a of stakeholder p o w e r and strategic posture,
function of the stakeholder's degree of control the better the economic p e r f o r m a n c e of a
o v e r resources required by the corporation company, the greater its social responsibility
(Ullmann, 1985). The m o r e critical stakeholder activity and disclosures.
resources are to the continued viability and
success of the corporation, the greater the
THE SOCIAL DISCLOSURE MODEL
expectation that stakeholder demands will be
addressed. If social responsibility activities are The empirical tests in this study use measures
viewed as an effective m a n a g e m e n t strategy for of stakeholder power, strategic posture toward
dealing with stakeholders, a positive relation- social responsibility, and economic performance
ship b e t w e e n stakeholder p o w e r and social to predict cross-sectional variations in one
p e r f o r m a n c e and social disclosure is expected. corporate social responsibility activity J cor-
As will be discussed b e l o w evidence suggests porate social responsibility disclosure. It is
that social responsibility activities are useful also hypothesized that in constructing the
in developing and maintaining satisfactory rela- model, a time lag b e t w e e n measures of the
tionships with stockholders, creditors, and explanatory factors and social disclosure is
political bodies. Developing a corporate reputa- necessary. This lag is necessary due to: ( 1 ) the
tion as being socially responsible, through dynamic nature of strategic planning, ( 2 ) the
performing and disclosing social responsibility focus of stakeholder theory on meeting the
activities, is part of a strategic plan for managing long-term interests of stakeholders, ( 3 ) the
stakeholder relationships. empirical findings of Cowen et al. ( 1 9 8 7 ) and
The second dimension of the m o d e l is the M c G u i r e e t al. (1988), and ( 4 ) the fact that
firm's strategic posture toward corporate social social disclosures relate primarily to past social
responsibility activities. Strategic posture de- responsibility activities.
scribes the m o d e of response of a company's The empirical form of the model is:
key decision makers concerning social demands.
UUmann dichotomizes strategic posture as SOCDISI,t = b0 + bl + b2 (PSHI,t-1)
active or passive. A c o m p a n y w h o s e manage- + b 3 (lnPACt,t_l) + b4 (DERATIO t,t-1)
m e n t tries to influence their organization's + b5 (PUBAFF~,t-I) + b6 (FOUNDs,t_,)
status with key stakeholders through social + b7 (MGRROE~,t_~) + ba (BETA~.t-~)
responsibility activities possesses an active + b9 (AGEt,t-1) + blo (INDEFFt.t-I)
posture. If a c o m p a n y ' s m a n a g e m e n t is not + bit (lnSIZEt, t-I) + el,
600 R W ROBERTS
where: FOUND. 2 L o g a r i t h m i c t r a n s f o r m a t i o n s o f t h e
variables PAC a n d SIZE a r e u s e d w h e n estimat-
bo, b l = i n t e r c e p t terms;
ing t h e social d i s c l o s u r e m o d e l . T h e transfor-
SOCDIS = level o f c o r p o r a t e social r e s p o n -
m a t i o n is p e r f o r m e d b e c a u s e variables w i t h
sibility d i s c l o s u r e for firm i in
o b s e r v a t i o n s that are large in a b s o l u t e a m o u n t s
p e r i o d t; 0 -- p o o r , 1 = g o o d , 2 =
c a n o v e r w h e l m o t h e r variables d u r i n g t h e
excellent;
logistic r e g r e s s i o n i t e r a t i o n p r o c e s s . A c o m -
PSH = p e r c e n t a g e o f o w n e r s h i p in firm i
p l e t e d e s c r i p t i o n o f t h e variables u s e d in t h e
h e l d b y m a n a g e m e n t a n d share-
m o d e l is p r e s e n t e d in T a b l e 1.
h o l d e r s h o l d i n g m o r e t h a n 5% o f
c o m m o n s t o c k at p e r i o d t - 1;
D e p e n d e n t variable
PAC = d o l l a r s c o n t r i b u t e d b y firm i t o
T h e d e p e n d e n t v a r i a b l e for t h e social dis-
its c o r p o r a t e p o l i t i c a l a c t i o n c o m -
c l o s u r e m o d e l ( S O C D I S ) is a d a p t e d f r o m an
m i t t e e in p e r i o d t - 1;
e x t e n s i v e analysis o f t h e social r e s p o n s i b i l i t y
DERATIO = a v e r a g e d e b t to e q u i t y r a t i o for
activities o f 130 m a j o r c o r p o r a t i o n s that w a s
firm i in p e r i o d t - 1;
p u b l i s h e d b y t h e C o u n c i l o n E c o n o m i c Priori-
PUBAFF = a v e r a g e n u m b e r o f c o r p o r a t e
ties ( C E P ) in 1986. T h e CEP analysis r e s u l t e d in
p u b l i c affairs staff m e m b e r s
a rating of each corporation's level of disclosure
e m p l o y e d b y firm i in p e r i o d t - 1;
o f social r e s p o n s i b i l i t y activities f r o m 1984 to
FOUND = s p o n s o r s h i p o f a p h i l a n t h r o p i c
1986. This extensive search b y the CEP involved:
f o u n d a t i o n b y firm i in p e r i o d
( 1) direct communication with each company,
t - 1; FOUND = 1 if a c o r p o r a t e
( 2 ) a r e v i e w o f c o r p o r a t e a n n u a l r e p o r t s , 10K
p h i l a n t h r o p i c f o u n d a t i o n exists.
r e p o r t s , a n d p r o x y s t a t e m e n t s , ( 3 ) an i n - d e p t h
O t h e r w i s e , FOUND = 0;
s t u d y o f n e w s p a p e r s , magazines, a n d o t h e r
MGRROE --- a v e r a g e annual c h a n g e in r e t u r n
p u b l i c a t i o n s , a n d ( 4 ) an analysis o f s e c o n d a r y
o n e q u i t y for firm i in p e r i o d t - I;
i n f o r m a t i o n s o u r c e s s u c h as The Taft Corporate
BETA -- m a r k e t m o d e l m e a s u r e o f syste-
Giving Directory, the N a t i o n a l Directory o f
m a t i c risk for firm i at p e r i o d t - 1;
Corporate Charity, and the National Data Book.
AGE = age o f c o r p o r a t i o n at p e r i o d
T h e CEP e v a l u a t e d e a c h c o r p o r a t i o n ' s social
t - 1;
disclosure performance and a rating of a =
INDEFF -- p r e s e n c e o f firm i in a h i g h
e x c e l l e n t , c = g o o d , o r f -- p o o r w a s d e t e r -
profile i n d u s t r y at p e r i o d t - 1;
m i n e d . If a c o r p o r a t i o n i n c l u d e d in t h e s a m p l e
INDEFF = 1 if a c o r p o r a t i o n is p a r t
r e c e i v e d an "a" rating f r o m t h e CEP, t h e
o f a h i g h profile industry.
d e p e n d e n t v a r i a b l e SOCDIS is set e q u a l to 2. If a
O t h e r w i s e , INDEFF = 0;
c o m p a n y r e c e i v e d a CEP r a t i n g o f "c", SOCDIS
SIZE = a v e r a g e r e v e n u e s o f firm i in
is set e q u a l t o 1, a n d for an "f" r a t i n g SOCDIS is
p e r i o d t - 1.
set e q u a l t o 0.
In t h e e m p i r i c a l tests, p e r i o d t r e p r e s e n t s t h e W i s e m a n ( 1 9 8 2 ) f o u n d significant d i s c r e p a n -
y e a r s 1 9 8 4 - 1 9 8 6 . F o r t h e i n d e p e n d e n t vari- c i e s b e t w e e n s o m e c o r p o r a t e social d i s c l o s u r e s
ables PSH, BETA, AGE, a n d INDEFF, t -- 1 a n d a c t u a l c o r p o r a t e social r e s p o n s i b i l i t y activi-
r e p r e s e n t s 1984. F o r PAC, DERATIO, MGRROE, ties. This l e d U l l m a n n ( 1 9 8 5 ) t o c o n c l u d e t h a t
a n d SIZE, t - 1 r e p r e s e n t s t h e y e a r s 1 9 8 1 - voluntary corporate disclosures should not be
1984. T h e p e r i o d t - 1 r e p r e s e n t s t h e y e a r s u s e d as p r o x i e s for social r e s p o n s i b i l i t y per-
1 9 8 3 - 1 9 8 4 for t h e variables PUBAFF a n d formance. By evaluating m a n y alternative sources
2The National Directory of Corporate Public Affairs is the source for data relating to the variables PUBAFFand FOUND
This directory was not pubhshed before 1983. Therefore, PUBAFFand FOUND are limtted to two years of data
SOCIAL RESPONSIBILITYDISCLOSURE 601
management to disclose social responsibility & Baysinger, 1988). Keim & Zardkoohi ( 1 9 8 8 )
activities (Ullmann, 1985). The variable PSH concluded that political action c o m m i t t e e con-
represents the percentage of outstanding com- tributions may serve as protection against
m o n stock held by corporate management and future political risks or to influence enactment
b y other individuals w h o o w n 5% or m o r e of of favorable legislation. In an analysis of environ-
the stock. Following from Keim and Ullmann, it mental regulation, Hahn ( 1 9 9 0 ) concluded that
is hypothesized that the wider the dispersion environmental policy decisions result from a
of corporate ownership the better the corpora- struggle b e t w e e n key interest groups and
tion's social responsibility disclosures. Thus, an specified industry influences as a critical com-
inverse relationship is predicted b e t w e e n PSH p o n e n t in the process. Hahn's conclusions
and the dependent variable SOCDIS. provide further support for a comprehensive
approach to analyzing pollution control ex-
Governmental and regulatory influences. penditures and corporate social responsibility
Freeman ( 1 9 8 4 ) discussed the role of legisla- activities.
tive bodies as corporate stakeholders. Watts & These studies in corporate political activity
Z i m m e r m a n ( 1 9 7 8 ) developed a political costs and environmental regulation infer that cor-
hypothesis to argue that corporations employ porate political action c o m m i t t e e contributions
social responsibility activities to reduce the risk result from a corporate strategy designed to
of governmental intrusions, such as regulation, manage political risks. It follows that relatively
that may adversely affect firm value. The larger amounts of corporate political action
political costs hypothesis and the stakeholder c o m m i t t e e contributions result from manage-
c o n c e p t both recognize the ability of govern- m e n t perceptions of higher regulatory and
m e n t to have an impact on corporate strategy political pressure, and that social responsibility
and performance. Thus, government can be disclosures will m o r e likely be of interest to
viewed as a corporate stakeholder whose regulatory agencies and political groups. Thus,
interests must be addressed b y management. it is hypothesized that PAC is directly related to
Higher levels of perceived governmental in- the d e p e n d e n t variable SOCDIS.
fluence on corporate activity would be ex-
pected to lead to a greater effort by management Creditor influences. Creditors control access to
to m e e t expectations of government. Social financial resources that may be necessary for
responsibility disclosures may be used by the continued operation of a corporation.
management as a strategy designed to satisfy Ullmann ( 1 9 8 5 ) posited that if a corporation
g o v e r n m e n t demands. perceives stakeholders as concerned with social
Prior accounting research has relied on a responsibility activities the corporation will
corporate size variable to p r o x y for the impact have greater incentives to disclose its activities.
of political activity on corporate strategy. Size Stakeholder analysis has b e e n used in prior
has b e e n criticized as a p r o x y for political research to explain corporate decisions regard-
exposure because it is correlated with many ing financial policies (Cornell & Shapiro, 1987;
other corporate characteristics. This study uses Barton et al., 1989). The analyses concluded
corporate political action c o m m i t t e e contribu- that capital structure decisions are part of an
tions from 1 9 8 1 - 1 9 8 4 as an indicator of overall corporate stakeholder strategy and that
g o v e r n m e n t stakeholder power. Corporate creditors are important stakeholders whose
political activity has b e e n described as a set of influences should be managed.
managerial decisions designed to increase the It follows that the greater the degree to
firm's competitive advantage in the political which a corporation relies on debt financing to
arena, and political action c o m m i t t e e contribu- fund capital projects, the greater the degree
tions have b e e n specifically discussed as a major to which corporate management would be
type of strategy (Keim & Zeithaml, 1986; Keim e x p e c t e d to respond to creditor expectations
SOCIALRESPONSIBILITYDISCLOSURE 603
concerning a corporation's role in social re- petitive advantages, the public affairs function
sponsibility activities. To test the hypothesis has b e e n legitimized and corporate support
that the level of c o r p o r a t e social responsibility increased (Marcus & Kaufman, 1988). Public
disclosure is directly related to the degree to affairs activities are designed to build long-term
which a corporation is leveraged, the variable rapport and goodwill with various stakeholders,
DERATIO is included in the social disclosure and to p r o t e c t or enhance revenues by control-
model. DERATIO is defined as the corporation's ling business and political risks.
average d e b t to equity ratio for 1981 to 1984. Given h o w prior studies have defined the
The debt to equity ratio is chosen as a measure mission of corporate public affairs departments,
of creditor stakeholder p o w e r because it cap- it follows that corporations that assume an
tures the i m p o r t a n c e of creditors as stake- active strategic posture toward social respon-
holders relative to equity investors. DERATIO is sibility activities would establish and support
e x p e c t e d to have a direct relationship to the a public affairs staff. The hypothesis that
level of c o r p o r a t e social disclosure. corporations with relatively larger public affairs
departments will have higher levels of social
Strategic posture variables. Hatten et al. responsibility disclosure is tested through the
( 1 9 7 8 ) define corporate strategy as relating to variable PUBAFF. PUBAFF represents the aver-
the goals and objectives of the firm regarding age size of the corporation's public affairs staff
the p r o d u c t s it offers, the markets it will serve, during 1983-1984.
and the e n v i r o n m e n t in w h i c h it will operate.
B o w m a n & Haire ( 1 9 7 5 ) discussed corporate Philanthropic foundation. Corporate contri-
social responsibility from a strategic posture butions to charity are generally considered
perspective. Ullmann ( 1 9 8 5 ) discusses the role social responsibility activities (Rosebush, 1987).
of strategy in defining h o w a corporation may Navarro ( 1 9 8 8 ) developed a formal structural
respond to social demands. An active strategic model in which corporate contributions to
posture toward social demands is e x p e c t e d to charity are also consistent with a profit maxim-
result in greater social responsibility activities. 3 ization objective. Profit motives consistent with
T w o variables included in the social disclosure charitable giving include: ( 1 ) p r o m o t i o n of the
model to test the relationship b e t w e e n strategic firm's image in order to help insulate the firm
posture toward social responsibility disclosure from unfavorable tax or regulatory policies; ( 2 )
and the level of corporate social responsibility educational support in order to increase the
disclosures are discussed below. long-run labor supply of skilled employees;
( 3 ) an increase in goodwill support by cus-
Public affairs staff. Corporate public affairs tomers; and ( 4 ) other promotional considera-
departments are developed to initiate and tions that may reduce operational and capital
m o n i t o r c o r p o r a t e policy regarding public costs (Navarro, 1988). The motives presented
relations, community affairs, governmental affairs, above describe anticipated responses from key
and issues m a n a g e m e n t (Marcus & Kaufman, stakeholders w h e n information concerning
1988). Marx ( 1 9 9 0 ) and Blair ( 1 9 8 6 ) emphas- corporate charitable contributions is disclosed.
ized the importance of integrating public affairs Rosebush ( 1 9 8 7 ) argued that charitable
m a n a g e m e n t into corporate strategic planning contributions are m o r e effective w h e n the
decisions. Due to corporate public affairs strategy for corporate giving is organized
departments' success in helping maintain com- and well executed. Corporate sponsored phil-
3As a revtewer pointed out, an "active" strategic posture toward social responsibility could imply an overt pohcy of
minimizing corporate social activities. I use the term "acttve strategic posture" to define a corporate strategy m whtch the
corporation portrays a positive stance toward social responsibility actavities
604 R W ROBERTS
anthropic foundations are established for this levels of social responsibility disclosure. The
specific purpose. Because corporate charitable average annual percentage change in a firm's
giving can be considered a strategic tool for return on equity from 1981 through 1984
managing stakeholders and organized giving (MGRROE) is included in the social disclosure
provides an effective method for monitoring model to test for this positive relationship.
this activity, the existence of a corporate
sponsored charitable foundation is used as a Systematic risk. Systematic risk is defined as the
measure of corporate strategic posture towards covariance between returns on a risky asset
social responsibility disclosure. The indepen- (e.~ a corporation's c o m m o n stock) and market
dent variable FOUND equals one if the firm portfolio, divided by the variance of the market
sponsors a foundation during 1 9 8 3 - 1 9 8 4 and is portfolio (Copeland & Weston, 1983). Corpo-
expected to be directly related to a corpora- rations that have low measures of systematic
tion's level of corporate social responsibility risk are expected to have higher levels of social
disclosure. responsibility activities for at least two reasons.
First, corporations exhibiting low systematic
E c o n o m i c p e r f o r m a n c e variables. Belkaoui risk have a more stable pattern of stock market
(1976), Ingram (1978), Mahapatra (1984), returns. Given that economic considerations
McGuire et aL ( 1 9 8 8 ) and others have empiric- influence corporate decision makers regarding
ally tested the relationship between corporate social responsibility activities, stable economic
social disclosure and economic performance. performance should enhance a corporation's
While some of the tests have controlled for firm ability to commit to involvement in social
size, industry classification, or systematic risk, responsibility endeavors. Second, because re-
the social disclosure/economic performance search suggests that social responsibility activi-
association has not been investigated empirically ties may improve a firm's access to capital and
in a comprehensive social disclosure framework. increase employee morale and productivity
In this study, an accounting-based measure (Moskowitz, 1972; McGuire et al., 1988),
(MGRROE) and a stock-market-based measure market participants may view socially respon-
(BETA) of economic performance are employed sible firms as better managed and, thus, less
to test the impact of prior economic performance risky. Disclosures of social responsibility activi-
on a company's level of corporate social ties would then provide information that the
responsibility disclosure. market uses in establishing firm value.
For the reasons stated above, corporations
Return on equity. Sustained growth in economic with low systematic risk are expected to have
returns to equity investors is a primary goal that higher levels of corporate social responsibility
is c o m m o n to all corporate managers. Trends in disclosure. A measure of a firm's systematic risk
earnings-based measures of economic perform- (BETA) is included in the estimation of the
ance, such as return on equity, are frequently social disclosure model. It is expected that
used in evaluating the performance of corporate BETA is inversely related to SOCDIS.
officers. Given that in periods of low profitability
economic demands take priority over discre- Control variables. Results of prior studies
tionary social responsibility expenditures, satis- have found significant relationships between
factory financial performance has a definite company size, the age of a corporation, industry
influence on the level of support top corporate classification, and social responsibility activities.
decision makers can commit to future social While no theory was forwarded to explain
responsibility activities (Ullmann, 1985). Thus, these empirical associations, prior research
stakeholder theory predicts a positive associa- suggests that corporate size, industry classifica-
tion between accounting-based measures of tion and corporate age are likely to act as
prior economic performance and corporate intervening variables and should be controlled
SOCIALRESPONSIBILITYDISCLOSURE 605
for in empirical tests (Cochran & Wood, 1984; high profile industries, the variable INDEFF is
Ullmann, 1985; C o w e n et al., 1987). In addi- set equal to one. If a company belongs to the
tion, arguments can be made that corporate age food, health and personal products, hotel, or
and industry classification represent some aspect appliance and household products industry,
of stakeholder power, strategic posture, and/or INDEFF is set equal to zero. Corporations in
e c o n o m i c performance. high profile industries are expected to have
higher levels of social responsibility disclosures.
Age. As a corporation matures, its reputation
and history of involvement in social responsibility Company size. Company size has been suggested
activities can b e c o m e entrenched. 4 Stakeholder in several studies as a correlate of the level of
expectations regarding sponsorship and in- corporate social responsibility activity. These
volvement could make any drastic change in studies posited that corporate size w o u l d be
corporate strategy very costly. Sponsorship related to social responsibility activities be-
withdrawal could signal to stakeholders that the cause larger companies are more likely to be
corporation expects financial or managerial scrutinized by both the general public and
disturbances. The age of each corporation in socially sensitive special interest groups. In
1984 is included in the model through the addition, larger companies ( 1 ) may have more
variable AGE and is expected to be directly shareholders interested in corporate social
related to SOCDIS. 5 activity, and ( 2 ) are more likely to use formal
communication channels to relate results of
Industry classificatior~ Industry classifications social endeavors to interested parties ( C o w e n
used in prior research may have captured some et al., 1987).
systematic relation between broad industry Although Ullmann ( 1 9 8 5 ) does not incorpo-
characteristics, such as intensity of competi- rate company size into his stakeholder frame-
tion, consumer visibility, or regulatory risk, and work, variables used to represent stakeholder
social responsibility activities. Studies have p o w e r or strategic posture dimensions (e.g. size
used samples from the metals, oil, chemical, of public affairs staff, dollars contributed to
electronic computing, food processing, airline, corporate political action committees) may be
and numerous other industries in analyses of correlated with company size. To control for
corporate social disclosures either because of possible corporate size effects, the variable SIZE
data availability or because of a perception that is included in the logistic regression. SIZE is
the particular industry faced unique social defined as the corporation's average revenues
pressures. In this study, as in prior studies, the during 1981-1984.
approach to controlling for possible industry
effects is rather a d hoc. Of the seven industries
included in the sample used in this study, the SAMPLE SELECTION AND DESCRIPTION
automobile, airline, and oil industries have the
most intuitive appeal as industries with con- Companies used to estimate the social dis-
sumer visibility, a high level of political risk, and closure model are drawn from 130 major
concentrated, intense competition. Thus, if a corporations that were investigated in 1984,
sample c o m p a n y is identified with one of these 1985 and 1986 by the Council on Economic
4 Navarro (1988) uses Texaco's sponsorshtp of the Metropolitan Opera broadcasts and AT & T's support of the pubhc
affairs program, the MacNeil--LehrerNews Hour, as examples of well-known corporate sponsorshtp
5A precise measure for the age of a corporation ts difficult due to the posstbthty of mergers, reorgamzations, and/or
signLtiCant changes in business activltmS. The Compustat measure supplies a conststent applicataon of an age calculation
method
606 R W. ROBERTS
Priorities (CEP). The CEP studies focus o n large use the 1986 CEP r e p o r t i n e v a l u a t i n g levels of
F o r t u n e 500 c o m p a n i e s because, in general, c o r p o r a t e social disclosure. As discussed pre-
t h e s e c o m p a n i e s are influential i n establishing viously, the CEP investigators rated t h e level
c o r p o r a t e t r e n d s i n t h e social r e s p o n s i b i l i t y of c o r p o r a t e social r e s p o n s i b i l i t y disclosures
area. Seven industry categories w e r e represented: for each c o m p a n y i n c l u d e d i n t h e i r study. Data
( 1 ) the a u t o m o b i l e industry, ( 2 ) the food for the d e p e n d e n t variable i n the social dis-
industry, ( 3 ) t h e h e a l t h a n d p e r s o n a l care c l o s u r e m o d e l (SOCDIS) w e r e t a k e n from the
industry, ( 4 ) the airline industry, ( 5 ) the oil 1986 CEP report.
industry, ( 6 ) t h e h o t e l industry, a n d ( 7 ) the I n a d d i t i o n to the i n f o r m a t i o n p r o v i d e d b y
a p p l i a n c e a n d h o u s e h o l d p r o d u c t s industry. the CEP, financial a n d o w n e r s h i p data w e r e
T h e results o f t h e i r s t u d y w e r e p u b l i s h e d in a r e q u i r e d to test the social d i s c l o s u r e model.
book entitled R a t i n g America's Corporate Financial s t a t e m e n t i n f o r m a t i o n was t a k e n from
C o n s c i e n c e ( 1 9 8 6 ) . Previous CEP r e p o r t s have t h e 1981, 1982, 1983, a n d 1984 COMPUSTAT
b e e n u s e d e x t e n s i v e l y i n social r e s p o n s i b i l i t y files and used to calculate the variables DERATIO,
r e s e a r c h (Spicer, 1978; C h e n & Metcalf, 1980; MGRROE, AGE, a n d SIZE. T h e m o n t h l y stock
Shane & Spicer, 1983). This s t u d y is the first to p r i c e data n e c e s s a r y to c o m p u t e a m e a s u r e of
TABLE 2 Descriptive statistics for independent variables by level of social responstbihty disclosure
Part A: Continuous variables
Companies with poor Companies voth good Compantes with excellent
Independent Variable soctal disclosure soctal disclosure social disclosure
variables name (n = 26) (n = 14) (n = 40)
Mean S.D Mean S.D Mean S.D.
Percentage of ownership held PSH 17 488 26.943 11.659 16.403 9.417 16.588
by management and principal
shareholders m 1984
Contributions to corporate PAC 57,652 85,292 89,221 65,854 83,982 88,149
politmal action committee for
1981-1984 ($)
Average debt/equtty ratio for DERATIO 1.719 1 395 0.941 1 767 1.967 5 108
1981-1984
Number of pubhc affairs staff PUBAFF 8.731 10 332 14 143 8.465 14.188 12.642
members m 1984
Average growth m return on MGRROE --22.519 131 352 7918 20.920 27 835 111 032
equity for 1981--1984 (%)
Market model measure of BETA 0.860 0 338 0.715 0 299 0 693 0.293
systematic rtsk (beta) in 1984
Age of corporation from AGE 53.346 25.197 65.785 28.412 71 075 23 314
reception to 1984 (years)
Average revenues 1981-1984 SIZE 5500 4 9482 6 13,271.0 17,O75.4 10,479.4 19,665.4
(million $)
Part B: Indicator variables
Companies voth poor Compames with good Companies with excellent
Independent Vataable social disclosures social disclosures social disclosures
variables name (n = 26) (n =- 14) (n = 40)
Number (%) Number (%) Number (%)
Corporate sponsor of a FOUND 8 (31) 11 (79) 29 (73)
philanthropic foundation
High profile industry status INDEFF 11 (42) 8 (57) 20 (50)
SOCIALRESPONSIBIUTYDISCLOSURE 607
TABLE 4 Logtsttc regression results for the soctal responmbfllty dtsclosure mode l
Dependent variable = ratmg of corporate social responsibility disclosures for 1 9 8 4 - 1 9 8 6
Independent Variable Expected Parameter Standard Cht-square
variable name sign estimate error stat~stm
Percentage of own ershtp held by PSH -- --0 013 O 015 0 74
m a n a g e m e n t and p n n c t p a l
shareholders for 1984
Cojntrlbutmns to corporate PAC + 0 058 0 033 3.02**
political actton c o m m i t t e e for
1981-1984
Average debt/equity ratio for DERATIO + 0.166 0 105 2 51"
1981-1984
Corporate p u b h c affatrs staff PUBAFF + 0.048 0 038 1 63
m e m b e r s m 1984
Corporate sponsor of a FOUND + 1 255 0 545 5 30***
philanthropic foundation
Average g r o w t h m r eturn on MGRROE + 0 007 0 004 3 41 **
equity for 1 9 8 1 - 1 9 8 4
Market mo del measure of BETA - --1 118 0 872 1 64*
systematic rtsk ( b e t a ) for 1984
Age of corporation since AGE + 0 030 0 O11 7 63***
inceptton as of 1984
High profile mdustry status INDEFF + 1 033 0 548 3 55**
Average rev enues 1 9 8 1 - 1 9 8 4 SIZE +/- - 0 413 0 330 1 56
bo n.a 0 931 2 613 0 13
bl n.a - 0 132 2 611 0 O0
Model chvsq uare = 34.29 w i t h 10 d f., stgnificant at less than the 0.001 level; R = 0 296
One-tailed tests ( e x c e p t for intercept terms): *** significant at 0 O1 level; ** stgntficant at 0.05 level, *stgntficant at 0 10
level
variance inflation factor exceeds 10.0. In this As can be seen by analyzing Table 4, all three
analysis, the variance inflation factors for the stakeholder p o w e r variables (PSH, PAC, and
SIZE and PUBAFF variables were 2.33 and 2.36, DERATIO) possess the expected signs. PAC is
respectively. The OLS findings mitigate, to some significant at the 0.05 level and DERATIO at the
extent, multicollinearity concerns. 0.10 level. The strategic posture variables
(PUBAFF and FOUND) have the expected
positive relationships to levels of corporate
ANALYSIS OF THE RESULTS social disclosure, with PUBAFF significant at the
0.10 level and FOUND significant at the 0.01
Estimation o f the social disclosure m o d e l level. MGRROE and BETA, the economic per-
The empirical model was estimated using formance variables, are significantly related to
logistic regression and is significant at the 0.001 SOCDIS at the 0.05 and O.10 level, respectively.
level with a Chi-square score statistic of 34.29. Of the model's three control variables, AGE and
The coefficient of correlation for the logistic IND have the expected positive relationship to
regression (R) is 0.296 and is interpreted in a SOCDIS and are significant at the 0.01 and 0.05
manner similar to that in OLS regression. The level. MSALES possesses a negative sign and is
estimation of the model is presented in Table 4. not significant.
SOCIALRESPONSIBILITYDISCLOSURE 609
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